E*TRADE (ETFC) Plunges After Citadel LLC Unloads its Entire Stake
Shares of online brokerage E*Trade Financial Corporation (ETFC: Analysis) plunged this week, after the company's largest shareholder, Citadel LLC, dumped its entire 9.6% stake of the company. Now that E*Trade's two-time savior, which had aggresively pushed the company to sell itself, has abandoned the brokerage, is all hope lost for investors? Daily Chart
Citadel saved E*Trade, the fourth-largest online brokerage by assets, twice in the past, and has aggressively pushed for the brokerage to sell itself.
During the financial crisis in 2007, Citadel invested $2.6 billion in E*Trade through the purchase of a portfolio of troubled loans including home mortgages. Citadel underestimated the depth of the crisis, and two years later, the hedge fund provided the majority of a $1.7 billion debt exchange to save E*Trade from total collapse. E*Trade has been a terrible investment for Citadel, declining over 75% since the latter's initial investment. Citadel made $800 million in gains from the purchase, by buying and selling E*Trade shares, but those gains are a pittance compared to its initial investments. Back in late 2011, Citadel CEO Ken Griffin publicly stated that E*Trade management has "squandered a phenomenal franchise." As Citadel unloads its stake, investors now have little hope to cash in on an acquisition premium. JMP Securities analyst David Trone called the situation a "double whammy," stating that Citadel's stake was "a lot of shares to throw on the market and is also the signal that any hope for a sale has diminished." Citadel's sale of 27.4 million shares marks the first time the hedge fund has sold E*Trade stock since April 2011, when it sold 50% of its stake. At the time, Citadel sold its stake to put its stake under the 10% threshold that separates major stakeholders from individual investors, thus allowing it to assume the role of an activist investor pushing the company to sell itself. When E*Trade refused to sell itself last year, Citadel ousted CEO Steven Freiberg and placed Griffin on the search committee. As a result, E*Trade recently appointed former Barclays PLC chief operating officer Paul Idzik as its seventh CEO (including interim chiefs) since 2007. The brokerage firm still has a $10.3 billion loan on its balance sheet, which it intends to reduce to zero. The loan still accounts for approximately 20% of the firm's total assets, down from roughly half in September 2007. E*Trade has already brought its loan amount down from $32.3 billion in September 2007. The firm expects the loan book to contract by $450 million per quarter through 2013. It is also in the middle of an $8.5 billion plan to deleverage its balance sheet, while cutting costs by $100 million by the end of the year. In other words, the firm is pulling out all the stops to shrink down its loan book to a more manageable size. Shares of E*Trade currently trade at 16.71 times forward earnings, with a 5-year PEG ratio of 0.54. The stock does not pay a dividend. Other News About ETFC E*Trade's Largest Shareholder Citadel Dumps Entire Stake
E*Trade shareholders panic as Citadel abandons the struggling brokerage. E*Trade Loses Largest Shareholder as Citadel Sells Out
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Published on Mar 15, 2013
By Leo Sun